The Debt Settlement

Credit is more important nowadays than ever before. Your credit score is taken into account for everything from car financing to job applications. Unfortunately, it has been common practice for people to misuse and abuse credit, leaving them with less than ideal credit scores.

The misuse of credit often results in debt. In this sense, credit can be anything like credit cards, medical bills, and advanced payday loans. When you have an unpaid or revolving balance on any of these things, you could have an unnecessary debt on your hands. Depending on the interest rates you have, your debt can snowball out of control in little to no time. Once the debt seems out of reach, many people tend to leave it alone, unpaid and festering on the back burner of their financial priorities.

Eventually, the debt will have to be taken care of, and it's always better to do it sooner than later. This is where debt settlement companies come into the equation, reconstructing the burned bridge between you and a good credit score. However, before you choose how to settle your debts, make sure you learn about your options and how different companies work.

Researching debt consolidation companies is the most important step in your quest to becoming debt free. You want to find a company that will cater to your situation and not just set you up with some cookie cutter plan that may not fit your financial life correctly and could set you back even further.

After you have chosen a company for your debt consolidation, they will establish a plan to settle with your debtor a percentage of the amount owed. It is best to have a good portion, if not all, of this percentage saved up already. If you don't, your debt consolidation company will set up a trust account where you can accumulate the funds for your debt settlement process. Be ready to change your financial habits if you haven't already. Half of debt settlement plans end up in the person dropping out before the debt is settled if the plan is 36 months or longer. With plans shorter than 36 months, the completion rate is 85%. It is important to remember that the amount of debt forgiven, or the difference in the amount you settle at and the amount owed, must be reported as income when you file taxes for that year.

Once you have armed yourself with the right knowledge, debt consolidation can be a handy tool in reestablishing your credit and becoming debt free.